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Under Minnesota law, it is important that local governments preserve their legal rights against banks regarding unauthorized payments made from local government accounts. Under Minn. Stat. § 336.4-406, once a bank (defined to include savings banks, credit unions, etc. “engaged in the business of banking”) sends an account statement to a customer, the customer has a duty to “exercise reasonable promptness” in examining the statement for unauthorized payments. If the statement discloses an unauthorized payment, it is the customer’s duty to “promptly notify the bank.” A customer that fails to fulfil this duty “is precluded from asserting” claims against the bank.

The number of days that constitute “reasonable promptness” often is specified in the depository agreement with the bank, and it may be less than 30 days. For example, in one case decided by the Minnesota Supreme Court, an account holder was barred from recovering from his bank $22,000 that the bank paid on forged checks, because the account holder did not notify the bank within the 20-day notification period provided in the agreement with the bank. See Stowell v. Cloquet Co-Op Credit Union, 557 N.W.2d 567 (Minn. 1997).

To preserve possible legal claims, know the time-period specified in the agreement with your bank and review bank statements accordingly.


Date this Avoiding Pitfall was most recently published: 3/15/2019

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